Trying to replicate the Blender Cloud dog
Sub-D box modeling

Dixey has a smooth surface with nice curves. 

Easiest way comes into my mind is to block out the overall shape and use the subdivision surface modifier to smooth the blocks. Make sure to use the Catmull-Clark algorithm.

Onece built the base mesh, it should be just a matter of refining the shape with more loopcuts, or you can even apply the modifies and use the sculpting tools to increase the bumpiness of certain ares.

Here's a possible result:



Notice how few polygons are used to control the surface.

Other possible techniques to built a base mesh to work with:


metaballs
skin modifer